Sanctions Enforcement — An Increasing Risk

Everyone writes about the FCPA and the UK Bribery Act. Some are more willing to tackle export compliance. Given the Obama Administration’s reliance on sanctions as a foreign policy tool, companies need to address the ever-changing configuration of sanctions to avoid criminal or civil liability.

The Justice Department’s record of aggressive enforcement of export controls and sanctions has been impressive. Steve Pelak, a former colleague of mine at the US Attorney’s Office in DC, has successfully led this heightened enforcement program.

For the first four months of 2012, the Justice Department charged five separate criminal cases for violations of sanctions under the International Emergency Economic Powers Act (IEEPA) and export controls. Most of these cases involve military equipment, computer technologies, and other materials, which require compliance with the Arms Export Control Act. In addition to these criminal penalties, the Treasury Department’s Office of Assets Control has collected nearly $1.7 million in civil penalties in the first four months of 2012.

Compliance with sanctions is a far different issue than compliance with the Arms Export Control Act or other export prohibitions. Sanctions prosecutions fall under the International Emergency Economic Powers Act (IEEPA). In 2006, Congress raised the maximum penalty for a criminal violation from $11,000 per violation to $50,000 per violation. One year later, then President Bush signed the IEEPA Enhancement Act which raised the maximum civil fines from $50,000 to the greater of $250,000 or twice the amount of the transaction at issue. Maximum criminal penalties increased from $50,000 to $1 million per violation. The maximum criminal penalty has remained unchanged at 20 years imprisonment.

On May 1, 2012, President Obama issued an Executive Order to tighten US sanctions against Iran and Syria. It targeted foreign entities and individuals which violate US economic sanctions, or who facilitate “deceptive transactions” for persons who are subject to the sanctions. Anyone non-US person who facilitates such a violation may be denied access to US trading markets or the US financial system. These are pretty significant consequences – far more than a “slap on the wrist,” or a fine which may be brushed off as a cost of doing business.

The Treasury Department’s OFAC issued guidance concerning the Executive Order reiterating that it expects US companies should be vigilant in their dealings with non-US companies to make sure that they do not violate sanctions.

The recent Executive Order reminds non-US parties that they may violate US sanctions laws and regulations when they facilitate a violation by a US person or entity. It extends the sanctions to so-called “deceptive transactions.” The consequences for such a violation may be very severe.

IEEPA already extends to non-US persons who order goods from a US person to be delivered to a sanctioned country. The Executive Order reiterates that a non-U.S. person may be sanctioned if it “has violated, attempted to violate, conspired to violate, or caused a violation” of any license, order, regulation, or prohibition contained in the sanctions against Iran and Syria.

The application of these principles can be very broad, especially the term “facilitation,” which has a very broad interpretation under the law and in regulations. It will be interesting to see how the Justice Department and the Treasury Department apply these new principles against non-US companies. Foreign companies that have escaped US jurisdiction may now suffer serious economic consequences if designated as a “foreign sanctions evader” under the new regime.